Autumn Statement Overview

The Chancellor of the Exchequer set out on 22 November 2023 what is highly likely to be his last Autumn Statement before the next general election. Following the continued freezing of income tax personal allowances and rate thresholds until 2028, which will raise significant amounts of tax due to high inflation, the Chancellor had some spare cash to spend. The announcements gave a small proportion of this back to individual taxpayers in the form of national insurance contribution cuts, whilst also making significant changes to the taxation of capital allowances for businesses by making ‘full expensing’ permanent.

From 6 January 2024, employee’s national insurance contributions will be cut from 12 percent to 10 percent for earnings between the primary threshold (£242 per week) and the upper earnings limit (£967 per week). The 2 percent rate for employees above the upper earnings limit and the employers’ 13.8 percent rate will remain. There are 45 days from the announcement (including Christmas and the New Year) for employers and their payroll providers to change their systems to reflect this change.

The self-employed, including partners, will wait until 6 April 2024 for their equivalent NIC rate to reduce from 9 percent to 8 percent. Whilst the weekly flat rate £3.45 compulsory class 2 contributions will be abolished from that date, individuals with profits less than £6,725 per annum will continue to pay voluntary contributions if they wish to receive benefits such as the state pension in the future. In addition, the simplified cash basis for calculating taxable profits will become the default method and the turnover, interest and loss relief restrictions will be removed. This may help unincorporated businesses as they move to a current year basis for calculating taxable income.

In the Spring Budget 2023 a temporary full expensing relief was introduced for main rate expenditure on plant and machinery (50 percent for special rate expenditure) for a period until 1 April 2026. This will now be made permanent in order to incentivise increased capital investment by companies. There will also be technical consultations on wider changes to further simplify the capital allowances legislation, including whether full expensing should be expanded to include leased plant and machinery. These measures will be warmly welcomed by large manufacturers, utilities including broadband fibre investors and other capital-intensive industries. At the same time, and despite the Chancellor’s description of the change as “the largest business tax cut in modern British history”, this measure essentially provides an acceleration of relief and so an upfront cash tax saving rather than a permanent tax reduction.

The other main business announcement is confirmation of the merger of the current research and development expenditure credit (RDEC) and small or medium enterprise (SME) schemes for accounting periods beginning from 1 April 2024. Relief under the new scheme will take the form of an above the line credit on qualifying expenditure including contracted out and subsidised R&D, and incorporating the current SME scheme PAYE and NIC cap. As announced by the Government previously there will be restrictions on relief for overseas expenditure. The new scheme will apply the RDEC rate of 20 percent, but the notional tax rate applied to loss-makers will be the small profit rate of 19 percent rather than the existing 25 percent in the current RDEC scheme.

Loss making R&D intensive SMEs will be able to continue to claim a 14.5 percent credit under the old SME tax relief scheme. This will initially apply from 1 April 2023 where R&D expenditure is at least 40 percent, then for periods beginning on or after 1 April 2024 this ‘intensity threshold’ will reduce to 30 percent. There will also be a one year grace period if the intensity threshold is not met.

For accounting periods beginning from 31 December 2024, large multinational companies will be impacted by the undertaxed profits rule which is a backstop rule in the OECD Pillar 2 measures to help tackle profit shifting and aggressive tax planning by multinationals. Whilst this will be introduced in a future Finance Bill, the forthcoming Autumn Finance Bill will include new changes to the current legislation on the multinational top-up tax and domestic top-up tax to take account of recently agreed international guidance and clarifications following stakeholder consultations. As with the multinational top-up tax and the domestic top-up tax, these amendments will apply for accounting periods beginning on or after 31 December 2023. Multinationals should already be preparing for the necessary changes to accounting systems, data retrieval, accounts disclosures and tax reporting which are required to meet the challenges of this new global regime.

Other sundry measures include a future consultation on the taxation of remote gambling, freezing alcohol duties, an extension of the business rates 75 percent relief for retail, hospitality and leisure sectors for one year, a freeze in the small business multiplier for 12 months, the reduction from 35 percent to 25 percent of the tax charge arising on authorised surplus payments to sponsoring employers of a registered pension scheme and an increase in the funding for HMRC to help improve the collection of tax debts.

With a Budget due in spring 2024, there is likely to be one more major economic event before the next general election where the Chancellor of the Exchequer can make changes to the tax system. This would enable tax changes in areas untouched today, such as inheritance tax. However, with most of his headroom utilised in this Autumn Statement’s give aways, this will reduce his room for manoeuvre next year. There is limited time and finances available for a future roll of the die, so the Prime Minister and Chancellor will be hoping that these measures are sufficient to meet their economic and political objectives.